29 July 2012

Vehicle efficiency improvements via effective standards and policies could reduce annual CO2 e emissions from the US, China, and the EU by 1.3 Gt at a savings of about $135 billion per year by 2030. Source: McKinsey & Co., ICCT-ClimateWorks. Click to enlarge.

The US, China, and the EU could reduce their combined annual CO2 emissions by 1.3 Gt in 2030 by implementing well-designed vehicle performance standards and fuel fees, according to a new analysis by a team from the International Council on Clean Transportation (ICCT) and the ClimateWorks Foundation.

Cumulative CO2reductions from 2010 through 2030 would total almost 10 Gt, with a cumulative net savings of $800 billion to $1.5 trillion over the same period, according to the recently published paper, “How Vehicle Standards and Fuel Fees Can Cut CO2 Emissions and Boost the Economy” The study is the second installment of the ClimateWorks “Policies That Work” series.

If policymakers are to succeed in their efforts to foster economic growth, improve public health, and protect the environment, they need to know which policies work, which don’t, and why. Various modeling efforts have tried to determine which technologies can increase vehicle efficiency, but comparatively little research has focused on the effectiveness of policies aimed at achieving that goal.

—Kodjak et al.

In 2007, the global transportation sector accounted for approximately 25% of total energy-related CO2 emissions&mdash almost 7 Gt, Of that, road transportation accounted for 5 Gt. Road transport CO2 emissions are expected to grow by more than 2% per year between 2010 and 2030 to a projected 8.4 Gt in 2030, largely due to the increased in vehicles in China, India, and other developing economies, the authors note. The US, China, and the EU are expected to remain the top three emitters, responsible for more than 60% of global road emissions.

The analysts find that two types of policies have proved the most effective at significantly reducing emissions from road transportation:

Vehicle performance standards which establish minimum requirements based on fuel consumption or greenhouse gas emissions per unit of distance traveled.

Economic signals such as fuel and vehicle fees which provide clear monetary incentives to consumers (to drive less and purchase more-efficient vehicles) and automakers (to improve vehicle efficiency beyond
the minimum requirement set by performance standards).

Performance standards produce predictable results because they require manufacturers to build more-efficient products, usually at very low cost—but in doing so, they make driving less expensive, which encourages consumers to drive more. Also, performance standards generally do not incentivize automakers to surpass the minimum requirements.

Fuel and vehicle fees, on the other hand, encourage consumers to buy
the most efficient models and thus nudge automakers to continuously improve efficiency beyond the minimum mandated levels. But they do
not guarantee improvement, and they are subject to some market failures: For instance, most consumers severely discount fuel savings when purchasing a car or truck. (Feebates, which combine fees on high-emitting vehicles with rebates for buyers of low-emissions vehicles, can address this market failure.)

If well designed and coordinated, these two policies complement and reinforce each other; the shortcomings of one offset the other’s. For example, consumers respond to the increased cost of driving due to high fuel fees not only by choosing more-efficient vehicles and driving less but also by choosing to live closer to work and public transit. These choices ultimately affect urban planning and land use patterns, with even bigger benefits to global greenhouse gas emissions.

—Kodjak et al.

Over the past 50 years, the authors note, government-set performance-based standards have driven new technologies into the marketplace that transformed the environmental performance of passenger vehicles. Similar policies can trigger comparable innovations to reduce greenhouse gas emissions, they suggest.

Set goals and let the market work out the best solutions. Rather than mandating a particular technology, such s electric cars or biofuels, policymakers should establish performance standards and levies to reduce emissions.

Standards and fees should be based on greenhouse gas emissions. Vehicle performance standards based on greenhouse gas emissions are more effective than fuel economy standards because they cover non-CO2 gases and address the different carbon intensities of different fuels. By the same token, fuel and vehicle fees should be linked to emissions rather than to vehicle attributes, such as weight or engine displacement, so that they can be applied across a range of technologies and fuels, according to the authors.

Require consistent, predictable performance improvements. Standards should be made more stringent on a constant, steady basis over several product development cycles—by 3 to 6% annually—to encourage ongoing innovation.

Go upstream in the manufacturing process and capture 100% of the market. Emissions performance standards should apply to all vehicles, including medium- and heavy-duty, agricultural and construction, and two- and three-wheel vehicles. To prevent manufacturers and consumers from circumventing the standards or fees, no model or fuel should be exempt.

Facilitate private sector investment and innovation. Vehicle standards and fuel and vehicle fee rates should
be predictable and well publicized to provide a meaningful signal to automakers and consumers.

When appropriate, such as for vehicle fees, policymakers should create “feebates” that offset charges with rebates, so that the pricing structure does not just penalize high-emissions vehicles but also rewards low-emissions models. The pivot point (the point at which rebates become fees) can be adjusted to meet the revenue target of fiscal policies.

Standards and fees should increase on a continual, rather than a stepwise, basis across vehicle classes. Requirements that become more stringent a step at a time, from one vehicle class or size range to the next, encourage manufacturers to meet only the minimum for each class. Standards and levies that use a continuous curve across classes push automakers to develop more-efficient products and maximize emissions reductions.